Assessing Local Authority budgets

For good or ill, our public libraries are intrinsically connected to the Local Authorities that fund and coordinate them. The challenges faced by libraries are less about a direct assault on libraries themselves and more a question of collateral damage arising from the twin policies of devolution and austerity. This being the case, the financial welfare of libraries is inextricably linked to the financing of Councils as their immediate ‘parent’ institutions.

We know the headline issues – faced with the decline and ultimate withdrawal of centrally-distributed grants from Government, Authorities are challenged to re-cast their finances based on what they can earn locally from Council Tax, Business Rates and other local subventions. The stinger is that while being granted freedom to enjoy greater local autonomy, Councils still find their revenue-raising and spending strictly circumscribed by Government regulation.

This squeeze means that Councils are increasingly becoming commissioners of contracts more than local service providers. Confronted with the onset of financial cuts, they are backing ever further toward the precipice of either bankruptcy or failure to deliver statutory duties.

Local Authority leaders, tasked both with motivating their staff to keep going in the face of these tribulations and protecting what limited discretionary resource they have left, have created a new vocabulary – a combination of management speak and inspirational rhetoric that becomes increasingly empty as the financial realities bite.

The annual budget-setting process

Once a year, this ‘narrative’ about money crystallises into a budget-setting process. This involves a group of people sitting in a room looking at a set of spreadsheets. Represented on a line-by-line basis are the specific costs (relative to the costs of the same activities in the past year) and where relevant, the financial income sources. Nowhere on these spreadsheets will you find a calculation of the secondary social, economic or educational value of the services they describe.

I know from many years’ experience of chairing budget meetings that when you sit a group of intelligent adults in a room with a spreadsheet, roughly half the room will struggle to understand what they are looking at. Understanding a traditional financial representation is a kind of literacy – it works for some people and mystifies others.

This gives rise to two phenomena. Firstly, those who flounder when looking at numbers will tend to defer to those who apparently understand them – giving the financial people undue weight in the process. Secondly, they will tend to abstract themselves from value judgements of the services themselves and focus instead on a relative assessment of the internal logic of the spreadsheet. In short, when confronted with spreadsheets, people tend to lose perspective and depend heavily on those with greater financial expertise.

This is why many Local Authority consultations feel like a done deal – whatever the options presented in the consultation, the dominant logic has largely already been set by the spreadsheet exercise.

The anatomy of a Council’s published budget

I have now spent countless hours reading post-2010 Council budget statements, and they all bear similar characteristics:

An opening narrative which sets the economic constraints as the first-order principle (tough times, reduced budgets, constraints on revenue-raising);

A congratulatory narrative about the efficiency savings and cost-reductions achieved so far, normally accompanied by a note to the effect that the quality of services remains high and taxpayer satisfaction is not declining (nothwithstanding the fact that it is usually too early to state anything at all about the net impact on quality or satisfaction in the long term);

A narrative about the ‘lines in the sand’ – usually the statutory and legal responsibilities of the Council (which has led to a demarcation between ‘nice-to-have’ statutory requirements and ‘lose your job’ statutory requirements such as child protection);

A set of spreadsheets which compound personnel and fixed costs with programme and variable costs (presented mixed together as a ‘portfolio’ budget.

Anyone that has been involved in finance at any scale will know that financial reporting and decision-making are as much an art as a science. The presentation can be used to emphasise some elements over others, draw attention from under-performing areas and focus it onto successes. The figures tell a story and the majority of finance professionals use their skill to try and ensure that this story is as accurate and useful as possible.

However, it takes real skill and insight to look beneath the figures and understand what they mean, and it is more difficult still to challenge the assumptions on which they are based. To take a simple example, the majority of Local Authority budgets presume a core cost model (staffing and salary levels and fixed costs associated with accommodation) and then seek to trim that model. At the heart of this model is salaries – almost always the most significant cost for any public organisation.

Revisiting the cost base

If what we are seeing in Local Authorities less an evolution in their form and function and more a wholesale revolution in their core purpose and operational model, then this revolution is not yet apparent in their budgets. While salary levels have been corrected downwards in the overall employment market, Local Authority budgets tend to maintain salaries at pre-2008 levels and then achieve savings by reducing the quantity of staff (through attrition, ‘natural wastage’ or direct redundancy). What tends not to have happened is a wholesale review of the cost base and salary assumptions of Council staff.

The steel hand of fiscal logic is also apparent in most Council’s approach to reserves. Since 2010, with some of the lowest interest rates in the postwar era, money in the bank is ‘dead’ money – it isn’t generating income sufficient to offset its declining value relative to inflation. In this environment, building up reserves is less an act of fiscal prudence and more an act of defensive paralysis, yet the majority of Councillors are agreeing budgets which seek to build up reserves as a defence against the volatility of the external environment. This risk-averse strategy effectively means that money is being withdrawn from frontline delivery and value-creation to develop siege defences which effectively cut off the services from future growth.

What you end up with in Local Authorities is increasingly a kind of ‘fiscal protectionism’ – an endless cycle of belt-tightening and the management of decline. This makes sense if your overall strategy anticipates an upswing, but it is not the way to prepare for a new normal.

The ‘new normal’

It is clearly the intention of central Government that Local Authorities should become functional administrators of a system of outsourced contracts for essential services. This is a fundamental shift away from Local Government in a leadership role and toward local government as a necessary cog in a machine which emphasises low taxation and the transfer of responsibility onto the shoulders of local communities. On the positive side, this agenda supposes that the best people to configure local services are the people who use them. On the negative side, this tends to favour volunteerism and the wholesale transition out of Local Authority support without an adequate plan for long-term sustainability.